STF Finalises Judgment on Non-Incidence of ITD on Gifts and Legacies

When the virtual judgment on the merits of RE 851.108/SP was concluded on February 26, 2021, the Federal Supreme Court prohibited the States and the Federal District from levying the Transfer Causa Mortis and Gift Tax (ITD) on donations or legacies from abroad without the enactment of a complementary law by the National Congress.

In accordance with its routine practice in cases with a certain tax impact, the Supreme Court, on that occasion, ended up moderating the effects of the judgment, with a view to reducing loss to the public coffers.

Thus, the decision became effective ex nunc, i.e. from the date of the judgment onwards, and April 20, 2021 was established as the reference date – the change did not affect lawsuits filed before this date, thereby safeguarding the rights of taxpayers who had already taken the matter to court.

Recently, in a virtual session that ended on April 8, 2022, the STF entered judgment in the second Motion for Clarification filed by the State of São Paulo against the decision on the merits rendered on February 26, 2021.

This time, the State of São Paulo had raised a possible contradiction in the Court’s decisions based on the above-mentioned modification. As expected, the STF decided to dismiss the appeal, bringing the issue to a close.

Note that on March 18, 2022, the Supreme Court had already reaffirmed its decision that ITD cannot be levied on donations and legacies from abroad when judging Direct Actions of Unconstitutionality (ADIs) filed by the Attorney General’s Office against provisions of the state laws of Paraná (ADI 6. 818), Tocantins (ADI 6.820), Santa Catarina (ADI 6.823), Mato Grosso do Sul (ADI 6.840) and the Federal District (ADI 6.833).

On all these occasions, the STF ratified its understanding that the States and the Federal District have no legislative competence to levy ITD on assets received from foreign residents, in view of the need for regulation of the matter by a federal supplementary law.

Accordingly, until a federal complementary law is enacted, ITD is not due where (1) the donor or deceased person is domiciled or resident abroad, (2) the assets inherited are located abroad, or (3) the probate proceedings take place outside Brazil.

Thus, as regards real property in Brazil, ITD is charged by the State where the property is located, in the case of transfer both by donation and inheritance.

In the case of personal (movable) property, ITD is charged by the State where the donor is domiciled or where the probate proceedings take place.

Finally, in the case of gifts originating from abroad, ITD will only be due on enactment by the Federal Government of the complementary law referred to above.

The same applies to transfers by way of inheritance where (1) the deceased was resident abroad, (2) the assets inherited are located abroad, or (3) the probate proceedings are conducted outside Brazil.

Thiago Peluso Rossi

Caio Magalhães Chaves Barbosa